UBS and RBC Lower 2025 S&P 500 Forecasts as US Tariffs Stir Recession Fears

Two major investment banks—UBS and RBC Capital Markets—have revised down their year-end 2025 targets for the S&P 500, citing rising recession risks and slowing growth triggered by a sweeping new US tariff policy.

The adjustment comes in the wake of President Trump’s recent announcement of broad-based import tariffs, described by analysts as a significant shift in US economic policy. The move has sparked fresh concerns over the economic outlook, leading strategists to cut expectations for both corporate earnings and overall market performance.

UBS Cuts S&P 500 Target Amid Deteriorating Economic Outlook

UBS has reduced its year-end S&P 500 forecast to 5,800, down from 6,400. The bank warned that the new trade policy marks “one of the biggest changes in US economic direction in a generation,” citing the likely drag on growth and corporate profitability.

In response to the evolving macroeconomic environment, UBS has lowered its 2025 earnings per share (EPS) estimate to $250 (from $265) and revised its price-to-earnings (P/E) multiple down to 20x from 21.5x.

“Higher tariffs and slower economic growth are expected to put pressure on US corporate earnings,” said Mark Haefele, Chief Investment Officer at UBS. He added that investor uncertainty and heightened risk premia are likely to persist as markets digest the potential impact of new trade barriers.

RBC Adopts More Bearish Stance on S&P 500 Outlook

RBC Capital Markets issued an even more cautious update, cutting its S&P 500 target to 5,550, down from 6,200. This marks the firm’s second downgrade this year, reflecting a significant shift from what was previously considered its “bear case” to its new baseline forecast.

Following the Rose Garden tariff announcement, the S&P 500 dropped more than 12% from its February 2025 peak, signalling a sharp market reaction. RBC strategist Lori Calvasina attributed the drop to deteriorating investor sentiment and increasing fears of a recession.

RBC also lowered its 2025 EPS projection to $258 from $264, citing a weaker GDP outlook, margin compression, and dilution from rising share counts.

“We're seeing considerable uncertainty around the earnings picture,” Calvasina noted. “If our revised forecast still proves too optimistic, we may see EPS stagnate year-on-year—a pattern common during non-recessionary economic shocks.”

Tariffs Likely to Weigh on Growth and Equity Markets

Both banks agree that the tariff escalation by the US government is likely to drag on business sentiment and increase the risk of a global recession.

UBS now expects US GDP growth to fall below 1% in 2025, anticipating that the Federal Reserve could respond with as much as 100 basis points in interest rate cuts.

RBC’s economic model has been similarly adjusted to reflect GDP growth ranging between 0.1% and 1%, a level historically associated with an average 17% annual decline in the S&P 500.

“This is our most pessimistic scenario and reflects the market’s fear of a recession tipping point,” said Calvasina.

(Sources: investing.com, reuters.com)